Does your business spend more than $50m in electricity or gas? Could you participate in the wholesale energy markets?

Date February 2018

With the outlook for energy in 2018 being one of persistent high prices on the east coast, industrial consumers are exploring the options available for taking back control of their energy spend. One option very large electricity and gas users can consider is to manage their own purchasing arrangements through the wholesale market. To do this they need to register as a ‘Market Participant’ with the Australian Energy Market Operator (AEMO). In this article, Energetics outlines the requirements.

What does being a ‘Market Participant’ allow my business to do?

The vast majority of electricity and gas consumers contract their energy supply through retailers who, with expertise and buying power, manage the market, regulatory and legal risks associated with being a Market Participant. If a business chooses to bypass an energy retailer and become a Market Participant they have the ability to directly negotiate electricity and gas contracts with a counterparty which is typically linked to a generator or gas producer. Energy users of significant size can potentially justify the additional risks and administration based on the potential savings that could be achieved by negotiating better energy rates. It is however, a large step to take which involves navigating numerous legal, regulatory and financial requirements.

Managing an energy portfolio is also time consuming, and while businesses may already hold expertise in trading commodities such as grain or oil, energy and in particular electricity, cannot be stored and therefore trades on a 24/7 spot market. This round-the-clock trading activity requires on-call support in case of market events which may impact the Market Participant.

Currently large consumers who are registered as Market Participants employ specialist staff to manage the risks as energy traders in the relevant gas or electricity markets. Depending on the nature of the business, these traders might also become sellers of electricity or gas and as a result make a profit through these sales without negatively impacting core business activities.

What does registration involve?

Navigating the often complex web of connecting, registering and accrediting with the AEMO can be capital and time intensive. The markets continue to change rapidly in terms of size, technologies, generation mix and policy direction, and in turn the requirements for participants are evolving. Also, as new players seek to enter the Australian energy markets, regulatory bodies are becoming more vigilant in assessing capabilities and eligibility criteria. In recent times, AEMO has deployed interim measures, particularly in the storage space, to update policy approaches quicker which has in turn impacted processes.

Renewable energy project proponents may also need to register with AEMO

On the generation side, some of the Government auctions and funding grants being offered in the market require proponents to be a Registered Participant or to have at least commenced the registration process with the AEMO. While these preliminary steps are often tackled by proponents later in their project schedules, they can be started much earlier. Although registration requirements are set out in the various Rules and procedures governing each market, compiling an application and determining what level of supporting evidence is required, can be unclear. This may prolong commissioning dates for renewable energy projects and result in unplanned project costs.

Energetics can assist stakeholders, particularly renewable energy generators and end-users to fulfil the requirements for market participation. If you would like to speak to an adviser on registering with the AEMO, please contact: Rebecca Harvey or John Bartlett.